|POSCO E&C office in Songdo, Incheon / Courtesy of POSCO E&C|
Builder expected to lose investor confidence and struggle to win orders overseas
By Park Jae-hyuk
POSCO Engineering & Construction (E&C) is expected to come under scrutiny by the Financial Supervisory Service (FSS) for its alleged accounting fraud, a lawmaker said Thursday.
The builder has been suspected of raising a slush fund while making investments in foreign companies.
The allegation came into question during a National Assembly audit in October, and the financial regulator said it is "considering" starting an investigation over the charge.
"The financial regulator's remarks obviously imply that it is ready to investigate POSCO E&C," Rep. Chu Hye-seon of the minor opposition Justice Party told The Korea Times. "POSCO E&C has not provided a clear explanation about its allegation, so I hope the prosecutors to begin an investigation after the FSS probe."
According to the lawmaker, POSCO E&C and POSCO Engineering collectively spent 200 billion won ($178 million) in 2011 to boost the British shell corporation EPC Equities and Ecuadorean construction firm Santos CMI through loans and rights offerings, after acquiring them.
The POSCO subsidiaries, however, eventually sold the two foreign enterprises to former stakeholders for 6 billion won in 2017, according to the lawmaker.
During the National Assembly audit in October, Chu urged FSS to examine POSCO E&C's financial statements, saying the company performed a write-off.
FSS Governor Yoon Suk-heun promised the lawmaker a probe of POSCO E&C at that time, saying the regulatory body would find out whether the construction firm performed a write-off and whether it breached its duty.
POSCO E&C CEO Lee Young-hoon said he would get punished, if the allegation turns out to be true.
"We've sincerely cooperated with prosecutors' investigation, since a socialistic civic group referred us to the prosecutors for our M&A deals," the CEO said during the National Assembly audit.
According to industry sources, FSS is also checking whether POSCO E&C breached the accounting standards, when it suffered a huge loss from its Brazilian subsidiary.
In March 2017, the construction firm revised its 2015 financial statements, citing a belated recognition of the Brazilian entity's loss that year. The company, which had posted a 93.4 billion won in net profits that year, rewrote that it suffered an 82.5 billion won loss.
FSS is reportedly suspecting the builder of exaggerating its business performance by revising its financial statements later.
POSCO E&C posted 89.2 billion won in operating profits in the third quarter, up 223.5 percent from a year earlier.